Belfast Telegraph

Wednesday 22 October 2014

Sammy must go back to the drawing board

Sammy Wilson

The public consultation on proposals to extend the Small Business Rate Relief (SBRR) scheme and, in parallel, to introduce a levy of 20% on the rates bill for large retail stores, has just ended.

Finance Minister Sammy Wilson must now decide whether to put firm proposals to the Assembly.

The central proposal is that the SBRR scheme would be widened to apply a 20% reduction to businesses with a net asset value (NAV) from £5,001 to £10,000. This would bring in an extra 9,000 premises and generate an average reduction of £730 each year and extend the reach of the SBRR to 25,000 businesses.

The trade-off, with neutral impact on the Stormont budget, would come from an extra rates levy on large retail businesses each of which has a NAV of over £500,000. On average, the 77 businesses in this category (controlled by 26 companies) would pay £85,000 more than at present.

In recent weeks some significant doubts about the merits of the possible change have been published. Some stem from contrasting judgments about the merits of trying to influence, or protect, decision making by retailers.

What is the purpose of the proposed scheme and are these objectives likely to be met within an acceptable cost structure? The Minister argues that the motivation is to create the right conditions for (economic) recovery.

The proposed scheme, whatever else, will change the incidence of business rates in favour of smaller businesses, whether in retailing or any other sector (including betting shops and bank branches, as opponents have emphasised). Switching rates charges towards large businesses, often multinationals, and away from smaller units, often family owned, would be a popular option, if there was no other economic logic.

There is a critical initial question to be asked. Is the current rating system already fair between different businesses? Distorting the answer produced from a fair calculation of NAV is adding an extra judgment to the equity in the NAV system.

To introduce a deliberate distortion of the rating system should be justified by other persuasive criteria.

Deliberate distortion might be justified if the NAV basis was inherently biased to disadvantage small firms. That contention does not seem to be justified.

Deliberate distortion might be justified if, despite the judgments setting NAV, larger retail stores were proportionately more profitable for their investors. However, deliberately increasing higher rates, because large firms may be more profitable, smacks of a distortion of competition. A complaint to the European Commission might be sympathetically considered.

The rationale for the minister's proposals is not compelling.

There are references to discouraging large out of town shopping centres in an effort to give town centres some extra support. The support for town centres argument is vulnerable on several counts.

First, it is inaccurate. The levy on large retailers applies regardless of locations and only marginally places more of the extra cost on out-of-centre stores.

If penalising out-of-centre locations is the objective, it is an inefficient device and, also, opens the prospect of claims of unfair interference with competition.

Perhaps more critically, if there is an effort to bring more business into town centres, away from out-of-town locations, then the starting point should be planning guidelines which have been properly approved. The focus for policy should be to correct the present inadequate planning policies and procedures (which should take more account of the logic of market forces).

To its credit, the CBI has made this challenge in its technical evidence. The CBI plea for the creation of business improvement districts (with agreed objectives and powers) is to be commended.

The minister's proposals make a well structured rating system more complicated and less objective. Whilst the proposals are aimed at extra support for small businesses, the impact would be small and immeasurable.

T'were better left undone - back to square one for a fresh think.

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